Fixed weight aggregates method - fisher''s ideal method, Financial Management

Fixed Weight Aggregates Method

In fixed weight aggregates method, the weights used are neither from base period nor from current period but from a representative period. These weights are generally referred to as representative weights or as fixed weights. These fixed weights are unaffected by the selection of the base period. This is the advantage under this method. The user of the method will be able to select a base year that is convenient to him enabling him to change the price base yet retaining the fixed weights.

The students may refer to the weights assigned to various industry groups constituting the Index of Industrial Production presented in the annexure.

Fisher's Ideal method

Prof. Irving Fisher has proposed a formula for constructing index numbers, which is called the 'Fisher's Ideal Index'. The Ideal index is given by the following formula:

Fisher's Price Index = 160_fisherideal method.png  x 100

As evident from the above formula,

Fisher's Ideal Index is the geometric mean of the Laspeyres and Paasche indices.

The following advantages can be cited in favor of Fisher's Ideal Index:

  1. Theoretically, geometric mean is considered the best average for the construction of index numbers and Fisher's index uses geometric mean.

  2. As already noted, Laspeyres index and Paasche index indicate opposing characteristics and Fisher's index reduces their respective biases. In fact, Fisher's ideal index is free from any bias. This has been amply demonstrated by the time reversal and factor reversal tests.

  3. Both the current year and base year prices and quantities are taken into account by this index.

    Fisher's Ideal Index

    808_fisherideal method1.png

    The index is not widely used owing to the practical limitations of collecting data. Fisher's Ideal Quantity Index can be found out by the formula,

    258_fisherideal method2.png

    x 100
Posted Date: 9/17/2012 2:49:49 AM | Location : United States







Related Discussions:- Fixed weight aggregates method - fisher''s ideal method, Assignment Help, Ask Question on Fixed weight aggregates method - fisher''s ideal method, Get Answer, Expert's Help, Fixed weight aggregates method - fisher''s ideal method Discussions

Write discussion on Fixed weight aggregates method - fisher''s ideal method
Your posts are moderated
Related Questions
discuss the applicability of an operating cycle to poultry business in uganda.

WHAT ARE THE TOOLS OR MECHANISMS THAT CAN BE USED TO ACCESS ECONOMIC RECESSION?

INVESTMENT DECISION AND COST OF CAPITAL In Finance, investment decision is disclose the allocation of funds in fixed assets or long term. This decision is also known as capita

To calculate the Cost of Capital, we will use the Weighted Average Cost of Capital (WACC) formula             WACC = (E/V) X R E + (D/V) X R D X (1 - T C ) where

Illustration  The monthly yield of a mortgage backed security is 0.75%. Find out the annual yield for this security. Solution Annual yield = 2 [(1 + 0

What is the matching principle of working capital financing?  What are the advantages of following this principle? The matching principle is while short-term financing is employe

applicability of an operating cycle in vegetable growing in uganda

BSE-500 and Sectoral Indices On August 9, 1999, another new index was introduced in the market which was based on the data of 500 companies and designated as BSE-500 index. It

Weighted Aggregates Index   In a weighted aggregates index, weights are assigned according to their significance and consequently the weighted index improves the accuracy of the

Explain the term- Authorised and Paid-up Share Capital Number of shares of stock provided for in Articles of Association of a company is the authorized share capital. This figu